'Supercapitalism,' 'Richistan' & mere millionaires

Greed and the Faustian bargain made by millions of Americans

ARROYO GRANDE, Calif. (MarketWatch) -- If a picture is worth a thousand words, an editorial-page cartoon is worth a million. They capture more than an entire paper about contemporary America. Yet, as with the old court jesters poking fun at a king's faults, after a nervous laugh, the message is ignored ... until historians write of the empire's demise.

Here's the scene: Board members sitting around a big table. CEO asks: "Raise your hands those in favor of saving their soul, rather than the company." That "Salt and Pepper" cartoon on the Wall Street Journal's editorial page says volumes about today's "American soul."

In recent years that scenario repeated many times in boardrooms across corporate America and Wall Street. They "sold our soul to the company store" to paraphrase a line from Tennessee Ernie Ford's 1950's song about the coal mines: "You load sixteen tons, and what do you get? Another day older and deeper in debt. Saint Peter, don't you call me, 'cause I can't go, I owe my soul to the company store."

Imagine the scene in boardrooms at companies such as Merrill, Citi, Bear, Countrywide, Moody's, even at the Federal Reserve and U.S. Treasury. Imagine their bosses asking: "Raise your hand. Do you want to save your soul? Or will you bend the rules to save the market and economy, your job and your bonus?" Well today, the metastasizing credit meltdown makes clear their compromises: For them, morals are negotiable, greed is always good.

It's not just 'them'

Greedy? Yes, but not just "them," us too.

The sad truth is: We're all selling our souls to the "company store." Not just the boardroom "suits" (the greedy CEOs getting hundred million dollar severance packages, and all the greedy directors now selling equity to foreign nations to cover up their gross negligence). No, today everybody is selling their soul, everybody secretly wants to become a millionaire and retire rich. And the media panders to this darker side.

In "Supercapitalism," Robert Reich reminds us: "America is assumed to best exemplify the idea that capitalism and democracy go hand in hand." But in the past three decades America's "free-market capitalism has triumphed. Yet democracy has weakened." We have become super-materialistic robots.

"In this transformation, we in our capacities as consumers and investors have done significantly better. In our capacities as citizens seeking the common good, however, we have lost ground," Reich writes. Power has shifted "away from us in our capacities as citizens and toward us as consumers and investors." Yet even as investors we're no match against a $12 trillion fund industry. And as consumers and employees, we've given away our power to mega-retailers bargaining with suppliers.

Yes, says Reich, we do have "more choice than ever before, and can switch to better deals. Yet as supercapitalism has triumphed, its negative social consequences have also loomed larger ... widening inequality as most of the gains go to the very top, reduced job security, instability of or loss of community, environmental degradation, violation of human rights abroad, a plethora of products and services pandering to our basest desires."

Supercapitalism is killing American democracy. So we substitute MySpace, Facebook, iPods, videogames, game shows and insignificant egocentric communities for our rights as American citizens, while still working in the "coalmines." Worse yet, political rhetoric aside, we really don't expect change. Why? Because "the same competition that has fueled supercapitalism has spilled over into the political process," as Reich writes.

Supercapitalism rules through 'super-politics'

Wall Street, blue-chips and the Forbes 400 "have hired platoons of lobbyists, lawyers, experts, and public-relations specialists, and devoted more and more money to electoral campaigns," Reich writes. Lobbyists outnumber elected officials more than 20 to 1. "The result has been to drown out the voices and values of citizens," Reich writes. Special interests are so powerful the top 25 hedge fund managers average $560 million yet pay taxes below the rate of America's working poor. Warren Buffett even admitted his tax rate is lower than his secretary's.

In this culture of greed, all of us -- from CEOs on top, to the middle class and struggling "mineworkers" -- all of us are selling our souls to the company store. Or more accurately today, to a new country that Wall Street Journal writer Robert Frank calls "Richistan" in his book "Richistan: A Journey through the American Wealth Boom and the Lives of the New Rich."

Oh, stop denying it! The glue binding all Americans, rich or poor, is self-interested greed, pure Adam Smith economics. We all want more, we want it now, and more is never enough. Hidden just below the surface of the new supercapitalism is a dark Faustian bargain: We're all trapped by our addiction to more, as investors and consumers we've bargained away our soul: Richistan now owns us!

"Richistan" offers a hard-edged snapshot of America's historic shift from democracy to a plutocracy of elite rich. Kevin Phillips, former Nixon strategist and author of "The Politics of Rich and Poor," says that in a plutocracy, power is centralized in the rich. They control government from the shadows, quietly leveraging their wealth through lobbyists.

'Richistanis' control more than 90% of America's wealth

A few years ago, Frank noticed America was still "minting millionaires after the tech bust, recession and terrorist attack of 2001." Actually that trend began a few decades ago, paradoxically about the same time the average American's wages began flat-lining. As America becomes a more unequal society, Richistanis barricade themselves in McMansions and gated communities where "the richest 1% of Americans control more than 33% of the total wealth, and their wealth is now greater than the bottom 90%," Frank writes.

Here's what Richistan looks like:

Lower Richistan. About 7.5 million households worth between $1 million to $10 million. However, "many Richistanis say that Lower Richistanis don't even belong in their country. They refer to the Lowers as 'affluent,' the ultimate Richistani insult," Frank writes.

Middle Richistan. More than two million Americans have a net worth between $10 million and $100 million. This may also include many in Thomas Stanley's "The Millionaire Mind" published in 2000. Their average net worth was $9.2 million, but inflation may protect them from that snarky "affluent" insult.

Upper Richistan. Frank says there are "thousands" with $100 million to $1 billion. Sadly, the Uppers recently increased with the firings of several greedy CEOs from Citi, Bear, Merrill and Countrywide.

Billionaireville. Forbes listed only 13 in 1985. By 2007, more than 400. Since 1995 their wealth has more than doubled to over a trillion. Another source says there are more than 1,000 American billionaires, many under the radar.

Although Richistan's population is less than 10 million today, they control more than 90% of America's wealth. What about the other 290 million people? Well, we all have the same mindset when it comes to matters involving greed and the "American soul," don't we? So today we're all supercapitalists, all obsessed with maximizing our positions as investors and consumers, even if it means surrendering our rights as citizens and voters to the elite Richistanis running America.

Like mortgages, Faustian bargains have due dates

In order to reap the promises of supercapitalism, we've all made Faustian bargains. But these agreements have a moral as well as economic bottom line. Eventually you must pay the "devil" his due. The first hint came in 2000-2002, with the post-90s recession. We didn't learn that lesson. Now, with the subprime-credit meltdown rapidly metastasizing, we have another chance to get it right during the 2008-2011 recession.

But don't hold your breath. Why? Because the grand drama painted in "Supercapitalism" and "Richistan" is not really as new as Reich and Frank want you to believe. It's timeless. Back in 2000, at the peak of the last insane bubble, gurus told us "this time it's different." Fortune published "Investing Wisely in an Era of Greed," a classic Jack Bogle column: "There is no 'new paradigm.' Hope, greed and fear make up the market's eternal paradigm." In short, Bogle reminds us, money always rules individuals and nations.

In "The Battle for the Soul of Capitalism" a few years later, Bogle again captured this age-old conflict in a comment made by a staunch conservative president, Herbert Hoover, who said: "The trouble with capitalism is the capitalists. They're too greedy." Hey, that'd make a great caption for a new cartoon on The Journal's editorial page: "The trouble with supercapitalism is the supercapitalists ... we're all too greedy!"

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